Seeking safety: The relation between CEO inside debt holdings and the riskiness of firm investment and financial policies

Cassell, Cory A.; Huang, Shawn X.; Sánchez, Juan M.; Stuart, Michael D.

doi:10.1016/j.jfineco.2011.10.008

Cited by 343 publications

(415 citation statements)

References 70 publications

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“…As a result, their earnings will be less volatile. Our conjecture is consistent with Cassell et al (2012), who find that CEOs with large inside debt holdings reduce the riskiness of firm operations to preserve firm value and reduce the probability of bankruptcy. They also find that the volatility of stock returns is smaller for those firms with higher CEO debt.…”

Section: Hypothesissupporting

confidence: 91%

“…Similarly, Anantharaman, Fang, and Gong (2013) find that firms whose CEOs have higher inside debt holdings have lower borrowing rates and fewer debt covenants. A recent study by Cassell et al (2012) documents that CEO inside debt is negatively associated with future stock returns, R&D expenditures, and financial leverage, which are widely used as proxies for risk-taking activities. Inside debt, however, is positively associated with risk reduction measures such as diversification and asset liquidity.…”

Section: Related Research and Hypothesis Developmentmentioning

confidence: 99%

“…The option delta, calculated using the Black and Scholes (1973) model, is the change in the value of option for a one-dollar change in the underlying stock price. To calculate the firm-level delta, DFE, we follow Cassell et al (2012). The approach is similar to that used for DCEO EH except that there are not complete data on all of the outstanding option tranches issued by the firm.…”

Section: Ceo Relative Incentive Ratiomentioning

confidence: 99%

“…We argue that in the presence of inside debt, a CEO's incentives to manage earnings are altered. CEOs with large inside debt holdings are more likely to protect the value of their inside debt holdings by undertaking less risky financing and investing activities (Cassell et al, 2012). Because less risky corporate policies lead to more stable earnings patterns, CEOs with higher inside debt holdings have weaker incentives to further manage earnings for the purpose of smoothing income.…”

Section: Introductionmentioning

confidence: 99%

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CEO Inside Debt and Earnings Management

Dhole

Manchiraju

Suk

2016

Journal of Accounting, Auditing & Finance

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This study examines the impact of CEO inside debt on earnings management. Theory predicts that CEOs with higher inside debt holdings adopt less risky corporate policies and choose investment policies that result in less volatile earnings. Under such circumstances, CEOs would face weaker demand for income smoothing. Consistent with these expectations, our results reveal that CEO inside debt is negatively associated with both accrualand real activities-based earnings management. We also find that firms with higher levels of CEO inside debt are less likely to meet or slightly beat analysts' earnings forecasts. Furthermore, the capital market response to positive earnings surprises is greater when CEOs hold higher positions of inside debt. Overall, our findings suggest that inside debt counteracts CEOs' incentives to smooth earnings through earnings management and investors understand the deterrence effect of inside debt on earnings management.

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Section: Hypothesissupporting

confidence: 91%

Section: Related Research and Hypothesis Developmentmentioning

confidence: 99%

Section: Ceo Relative Incentive Ratiomentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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CEO Inside Debt and Earnings Management

Dhole

Manchiraju

Suk

2016

Journal of Accounting, Auditing & Finance

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“…After an increase in mandated disclosure, bond prices increased and equity prices decreased at the revelation of signi…cant inside debt holdings by CEOs (Wei and Yermack, 2011). Inside debt is also associated with lower stock return volatility, R&D expenditures, and …nancial leverage (Cassell, Huang, Sanchez, and Stuart, 2012), and with lower bond yields and fewer covenants (Anantharaman, Fang, and Gong, 2014). However, without credible instruments for inside debt, interpreting these correlations is di¢ cult.…”

Section: Evidencementioning

confidence: 99%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives. We compare pay in U.S. public firms to private and non-U.S. firms. We then critically analyze three non-exclusive explanations for what drives executive pay -shareholder value maximization by boards, rent extraction by executives, and institutional factors such as regulation, taxation, and accounting policy. We confront each hypothesis with the evidence. While shareholder value maximization is consistent with many practices that initially seem inefficient, no single explanation can account for all facts and historical trends; we highlight major gaps for future research. We discuss evidence on the effects of executive pay, highlighting recent identification strategies, and suggest policy implications grounded in theoretical and empirical research. Our survey has two main goals. First, we aim to tightly link the theoretical literature to the empirical evidence, and combine the insights contributed by all three views on the drivers of pay. Second, we aim to provide a user-friendly guide to executive compensation, presenting shareholder value theories using a simple unifying model, and discussing the challenges and methodological issues with empirical research. JEL-Codes: D310, D860, G340, M120. Terms of use: Documents in

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Revisiting corporate governance and financial risk‐taking

Alzayed,

Eskandari,

Eshraghi

et al. 2023

Int. J Fin Econ

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Corporate governance attributes have varying effects on risk taking when variables are examined separately. We study the effects of a large range of corporate governance attributes on risk taking using a comprehensive US sample. Our findings confirm that although there are certain characteristics that drive this positive effect such as compensation structure, there are those which have the opposite effect such as board‐level attributes. Our paper contributes to the broader literature on the relationship between corporate governance and risk in financial institutions, which are often overlooked in traditional studies. We shed light on the importance of studying corporate governance at a granular level rather than using a single index. The findings offer insights to regulators in determining suitable corporate governance frameworks to ensure the protection of investors rights in financial institutions.

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Seeking safety: The relation between CEO inside debt holdings and the riskiness of firm investment and financial policies

Cited by 343 publications

References 70 publications

CEO Inside Debt and Earnings Management

CEO Inside Debt and Earnings Management

Executive Compensation: A Survey of Theory and Evidence

Revisiting corporate governance and financial risk‐taking

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